In the past few years, governments worldwide have established several new policies to prevent financial crimes. A number of businesses, such as money services businesses (“MSB”), travel agencies, jewelry stores, pawnshops, etc., have to comply with regulatory rules and requirements for the purpose of anti-money laundering, anti-terrorist financing and anti-fraud.
In order to explain the present invention in detail, we will use MSB in the USA as an example in this document. However, the present invention applies to other businesses as well.
Money services, such as check cashing, money transfer, foreign currency exchange, selling stored value cards, are very popular today. Even in some grocery stores or supermarkets, money services are often offered to attract customers or to subsidize the fee income to the business.
Starting from 2002, the US government requires money services businesses (MSB) to register with the government periodically and to cooperate with the government agencies for the purposes of preventing crimes. Since it is very difficult for the government agencies to identify and monitor these tens of thousands of MSBs across the nation, the government agencies have skillfully transferred this huge task to financial institutions, which often have MSBs as their clients.
In the April of 2005, bank regulators such as Federal Reserve Bank (FRB), Federal Deposit Insurance Corporation (FDIC), Office of Comptroller of Currency (OCC), and Office of Thrift Supervision (OTS) issued a joint statement, confirming the requirement that a financial institution has to file a Suspicious Activity Report (SAR) if the financial institution knows that its MSB client has violated any law.
MSBs have to comply with many legal requirements. For example, MSBs have to comply with the requirement issued by the Office of Foreign Assets Control (OFAC), which prohibits MSBs from conducting business with any entity on the blacklist published by the OFAC periodically. According to the Bank Secrecy Act, an MSB is required to file a Currency Transaction Report (CTR) if any of its clients has conducted transactions for more than $10,000 in cash on the same day. An MSB has to file Suspicious Activity Report (SAR) if any of its clients conducts any suspicious activity, including the structured activities that attempt to avoid the filing of a CTR by the MSB.
According to the USA PATRIOT Act, an MSB has to authenticate the identity of a client before conducting any transaction for the client. In addition, an MSB has to periodically register with government agencies. In order to determine whether its MSB client has complied with the applicable laws, a financial institution has to use a tremendous amount of effort to monitor, detect, and report suspicious activities about the MSB and the MSB's customers. For example, to verify whether an MSB has checked its customers against the OFAC list as required by law, a financial institution may have to check all the payees of those checks deposited by an MSB against the OFAC list.
Currently, many financial institutions use a manual process to examine, for example, every check deposited by the MSBs. This expensive manual process is not even sufficient because cashing checks is just one of the many possible money services. An MSB can typically cash checks, advance cash, transfer money, exchange foreign currency, issue money order, sell stored value card, etc. It is practically impossible for financial institutions to monitor all of these activities.
Most small businesses (e.g., grocery stores, travel agencies, etc.) have very limited capabilities to comply with regulatory requirements and applicable laws. In fact, most business owners do not even know what they have to do in order to comply with the evolving regulatory requirements and applicable laws.
At the same time, financial institutions are under heavy regulatory pressure to monitor and manage these business clients and file SARs for any violation of laws. In the recent years, government agencies often issued a huge monetary penalty to a financial institution, which fails to comply with the regulatory requirements and applicable laws.
For example, AmSouth Bank was fined $50 million for failure to file SARs as required by laws; Riggs Bank was fined $25 million for failure to file SARs; UBS was fined $100 million for failure to comply with the requirements set by the Office of Foreign Assets Control. As a result, financial institutions are very concerned about how to monitor and manage business clients in order to comply with the regulatory requirements.
In reality, it is extremely difficult, if not impossible, for a financial institution to monitor and manage any business client because a financial institution has no idea what has been transacted between a business and its own clients. As a result, many financial institutions charge their MSB clients very high service fees in order to compensate their compliance expenses and risks. Under the regulatory pressure, some financial institutions do not even want to deal with MSBs in order to avoid compliance risks.
It has become a nationwide trend for financial institutions to close the accounts of their existing customers, which may conduct money services businesses. MSBs are also struggling for survival now. It is obvious that banks need a practical solution to manage their MSB clients, and MSBs need an effective way to earn the trust from their banks.
In this document, the terminology “identification information” generally refers to a set of information that is required to authenticate the identity of a person, an organization or an entity. For example, such information may include the name, address, social security number, employer identification number, driver's license number, the number of the article of incorporation, date of birth, date of incorporation, etc.
In this document, the terminology “network” or “networks” generally refers to a communication network or networks, which can be wireless or wired, private or public, or a combination of them, and includes the well-known Internet.
In this document, the terminology “computer system” generally refers to either one computer or a group of computers, which may work alone or work together to reach the purposes of the system.
In this document, a “bank” or “financial institution” is generally referred to as a financial service provider, either a bank or a non-bank, where financial services are provided.
Reference should also be made to our co-pending application entitled “Dynamic Multidimensional Risk-Weighted Suspicious Activities Detector,” which is hereby incorporated in its entirety.